Pound above 1.3900 on Dollar
UK GDP releases beat expectations but the market attention was drawn to the long recovery path given the overall contraction last year. There were also further concerns surrounding the underlying budget situation with Chancellor Sunak under pressure to maintain strong support. The Pound hit lows near 1.3775 against a stronger US Dollar. The National Institute of Economic and Social Research estimated that the UK economy shrank 5.3% in January after growing by 1.2% in December, giving a year-on-year decline of 11.5%. February is expected to flatline and March is forecasted for significant growth as lockdown restrictions are lifted bringing the first-quarter result to a contraction of 3.8%. Through the afternoon Sterling recovered ground through the afternoon, re-testing 1.3850 against the Dollar and pushing past 1.1430 on the Euro.
Futures market data revealed an increase in bets on Sterling rising, from 10k contracts to 21k suggesting that hedge fund buying has increased.
The Pound has benefitted from optimism surrounding lockdown restrictions being eased and better global risk appetite. This morning the Pound opens near 1.3900 against the Dollar, a 2.5 year high, and 1.1450 against the Euro.
The US currency gained traction against most major currencies, especially commodity currencies.
The University of Michigan consumer confidence index declined to 1 6-month low of 76.2 for the preliminary February reading from 79.0 the previous month and below consensus forecasts of 80.8. There was a slight decline in the current conditions index and a sharper downturn in the expectations component while the one-year inflation expectations index increased to 3.3% from 3.0% previously. There were still some near-term reservations over trends in retail sales.
The Euro moved back above the 1.2100 level and settled around 1.2120 at the New York close. CFTC data recorded a small net increase in long Euro positions to 140,000 contracts for the latest week from 137,000 previously
EUR dropped to 1.2080 last Friday before rebounding strongly to end the day little changed at 1.2118 (-0.08%). The underlying tone has firmed somewhat but while there is chance for EUR to edge higher, a clear break of the major resistance at 1.2150 appears unlikely (minor resistance is at 1.2135). Support is at 1.2100 followed by 1.2080.
We noted last Wednesday (10 Feb, spot at 1.2115) that ‘vastly improved upward momentum suggests current EUR strength could break 1.2150 and extend to 1.2180’. EUR subsequently traded in a quiet manner and upward momentum has slowed a tad. That said, the upside risk remains intact and only a break of 1.2045 (no change in ‘strong support’ level) would indicate that EUR is not ready to move above 1.2150.